Volkswagen hatches plans for Indian compact SUV | Reuters

NOIDA, India Volkswagen has begun plans to launch a compact sport utility vehicle (SUV) in India, a company executive said on Thursday, joining global rivals looking to tap one of the sector's fastest-growing markets.

Once dominated by no-frills vehicles, the Indian car market is undergoing a shift as rising incomes lift demand for roomier, feature-rich compact SUVs and sedans, with buyers looking beyond price and fuel efficiency and focusing on technology, comfort and design.

"This is one of the segments which is fast growing and we are not present there at the moment," said Volkswagen India's managing director, Andreas Lauermann, referring to compact SUVs. "This is a segment that will also be growing in the future. We have started thinking about this and started defining the car."

Lauermann said that VW would look at introducing such a car in India within the next two to three years.

Compact car sales in India grew by 15 percent between April and December last year, while sales growth in the mini and small cars segment slowed to 2 percent, industry data showed.

Compacts are likely to contribute nearly 20 percent of that, helped by rising incomes as well as new safety rules that will impose crash test standards by 2017.

Germany's VW, still contending with the fallout from the diesel emissions scandal, introduced the Ameo compact sedan in India this week, offering rain-sensing wipers, cruise control and a touchscreen infotainment system -- features typically reserved for premium cars -- as it looks for an edge over competitors.

At India's biggest autoshow this week, VW and rivals General Motors, Honda and Hyundai, as well as local companies Maruti Suzuki and Tata Motors, unveiled as many as a dozen compact sedans and SUVs for India.

Global carmakers have previously found India a hard market to crack, hampered by their inability to keep prices low because of imported components, but also by a lack of new models and poor reach of their sales and service networks in rural areas.

The government's push for safer vehicles, requiring manufacturers to add features such as dual airbags, has also helped to drive the market shift from small, no-frills vehicles to comparatively larger compacts, said Tim Leverton, head of advanced and product engineering at India's Tata Motors, which launched its Nexon compact SUV at this week's autoshow.

(Additional reporting by David Lalmalsawma; Writing by Sumeet Chatterjee; Editing by David Goodman)

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